Select Committee on Regulatory Reform Minutes of Evidence

Examination of Witnesses (Questions 40-59)


1 APRIL 2008

  Q40  Dr Naysmith: It is fairly easy to find out whether that is true or not.

  Mr Ehmann: It is. One of the things that you mentioned, and certainly we will have heard from business owners, is something that is slightly different, which is about whether other European nations are fulfilling their obligations. I think that is a wider problem and a more difficult problem to measure, but if there are widespread examples of gold-plating in its true sense that is quite a serious issue which needs investigation.

  Q41  Dr Naysmith: I am supposed to ask questions about the scrutiny of regulation. As you know, lots of bodies have worked with regulation scrutiny in the UK—the Better Regulation Executive, the Risk and Regulatory Advisory Council, the Cabinet-level Panel for Regulatory Accountability, as well as this Committee, and I suppose the Public Accounts Committee has been poking its nose in recently as well. Do we have the right structure for scrutinising regulation in the UK in the light of all these different bodies?

  Mr Ehmann: I will start with a very short one, if I may. We absolutely welcome the amount of scrutiny that is going on. Accepting that there may be best realms for certain types of scrutiny and better realms for others, it is excellent to see that there is so much interest and energy invested in scrutinising this agenda, so I would not discourage that in any sense. I think clarity about which elements are being looked at is critical though.

  Q42  Dr Naysmith: Was it a good idea to transfer the BRE from the Cabinet Office to BERR? Was that a good move?

  Mr Ehmann: I cannot see that its move has affected its ability to do its job in the short term. There was a potential question about whether a department, seen in a different light from that of the Cabinet Office, would be able to extend across government in the way that was desired, but I think the jury is still out on that and we have not seen any problems to date.

  Q43  Dr Naysmith: Was there any evidence of that happening before in a meaningful way that is not happening now?

  Mr Davenport: There was some evidence of friction between BERR and the BRE and it was starting to become confrontational, and I think it was a good move that they moved them together because they are working to the same end at the end of the day. Albeit that one is scrutinising the other, they are still working to the same common end and I think they have kissed and made up now. Things are a little better.

  Q44  Dr Naysmith: Have you anything to add, Mr Fell?

  Mr Fell: On the scrutiny point, I would endorse what Alexander has said about the need for greater clarity in that. As we have had a number of changes in some of the bodies as we have gone from a Better Regulation Task Force to a Better Regulation Commission and a Risk and Regulatory Advisory Council, I think there is a perception there that the scrutiny involved in that has diluted slightly, so I think there is a big onus on the Better Regulation Executive to play a big scrutiny role, and I think there is a need for transparency about that scrutiny to add to confidence in the process and that will help to tackle some of the perception issues we have been talking about this morning. That would be my take on where the scrutiny role sits at the moment.

  Ms Low: I would broadly agree that I do not think we have any appetite for any different structures from what we have at the moment. We have not noticed anything appreciably different or falling off in the way of the BRE's effectiveness since they went into BERR, but I think there is still a very important point to make about the lack of measurable benefits from the structure, but that is not to say that merging all of those structures into one is going to produce different benefits. It is about ensuring that BRE is operating effectively within the heart of Government and is providing that very robust scrutiny role.

  Q45  Dr Naysmith: I am sure you have mentioned earlier this morning the health and safety and employment regulation and the Government and BRE are looking at both of these areas. Do you have any specific suggestions on how to improve those areas without lowering standards? I suppose we had better remember that health and safety is probably the most misunderstood and the most unpopular body that is responsible for regulation.

  Mr Davenport: From the FSB's point of view, we did a survey on that and found that 72% of businesses found health and safety administrative requirements more bureaucratic, and some of the bureaucracy that is in that legislation can be slightly farcical when you are talking about businesses of one or two people, things like fire doors, where you have signs over fire doors and it is the only door in the building so it is difficult to get out anywhere else, silly things like that.

  Q46  Dr Naysmith: But was it not also found that when things were properly explained in clear English people understood and accepted it?

  Mr Davenport: Absolutely.

  Q47  Dr Naysmith: And the amount of time they had to spend on it vanished?

  Mr Davenport: Yes, and also the Health and Safety Executive come round a lot more. Funnily enough, in my business we had a survey only recently and they were saying to me that on the estate that we are on, which is something like 40 separate companies, there were only two question marks on the entire estate, and they say that small businesses tend to be much more on board because the business owner is living and working in the building so he does not want to injure himself, so he is going to get the Act correct. Mainly health and safety is common sense and it tends to be larger organisations—I have a colleague who is in the construction industry—where things become a problem because building things is a risky business, and that is where the legislation needed to be concentrated more than on electronics businesses or, in my case, high precision engineering businesses.

  Q48  Dr Naysmith: So you agree with me that explaining things better and making the regulations clear makes a big difference? We do not want to lower standards in lots of areas, and certainly in the building industry standards have improved immensely in the last 10 years or so.

  Mr Davenport: We mentioned this before. It is communication which is what we are talking about. There used to be a resistance to talking to the official that comes through the door, but they are beginning to have some training, although I think that could be improved, and if they are not seen to be enemies but are seen to be assisting then a lot of those comments will disappear.

  Q49  Dr Naysmith: Mr Fell, do you have anything to add?

  Mr Fell: I would agree with exactly your starting point. Quite clearly at the end of the day business has got very much the same interests here, as Clive said. Everyone wants fit and healthy people at work. That has got to be the starting point. I think where the frustration comes in is how you go about that. HSE, in their simplification plans, I think, have already delivered something like a 50% reduction in the form-filling aspects of what they do and I think that will help to tackle a lot of frustrations there. The other bit about it is getting the touch points right, so on the inspection and enforcement regimes, if we can get right a lot of some of these ideas around data sharing so that they are not providing the same bit of information several times over or to different agencies or bodies, I think that will be a real help in getting a more positive level of engagement with this agenda. Perhaps some of the work that is going on in the retail enforcement pilot approach could be a useful model there.

  Q50  Dr Naysmith: How about employment regulations as well as health and safety regulations? Some of the employment regulations are unpopular because they inevitably increase costs as part of the regulation.

  Mr Fell: I think that is right, but again you can help tackle some of the frustration aspects of employment legislation. With the national minimum wage, for example, when it was introduced, I think a number of sectors from the outset (and it remains the case today) found it difficult to pay that absolute amount but it has been introduced at a very pragmatic level and certainly is quite simple to operate as a process. Contrast that with the Working Time Directive, which I think firms would tell you administratively is, quite frankly, a bit of a nightmare. We are talking about examples of EU best practice, definitions of autonomous workers, for example, to whom the directive should apply, so I think there are two good contrasts there in probably the most well known pieces of employment legislation in recent times in terms of the approach that is taken to them and the frustration factor that companies have with them, albeit they might take issue with the cost basis, and if we can tackle the frustration aspect that would certainly help.

  Q51  Judy Mallaber: The CBI in its report talked about new employment rights adding £37 million to business costs and the FSB in the piece that they have given us go into all the different employment rights. Are there any of those employment rights that either organisation or the other organisations would want to get rid of, or is it just around administration? I would prefer you to be up front and say if you are arguing to take any of those rights off the statute book.

  Ms Low: For us it would be impossible to make a case to remove any one piece of regulation. That is where the cumulative impact of argument comes from because our business members can very easily see what the underlying policy aim is of a lot of the employment legislation and what has come on board. One of the things that I think it is important to bring out, particularly with employment legislation now, is the fact that there is a shift and what adds to the frustration which Matthew was talking about is also when you get businesses who are doing much of the things that are being advocated and then they see more legislation coming in on the top of that, so that is back to the point about flow. We have picked up from survey work about small and medium sized businesses, with the right to request to return to work on a part-time basis, for example, substantial evidence to show that 90% of those surveyed showed that the businesses are doing that for their employees and so you then get a very powerful argument against any more employment legislation in that area. I think that is quite an important policy point to make when the thinking is coming in around what new to do. Just very briefly on parliamentary scrutiny, when you look at the fact that 3,000 statutory instruments come through each year, many of them on very minor things, once again it is a cumulative point, that buried in there will be a number of very big things which have a lot of large impacts and stemming that flow is a very important part of the parliamentary scrutiny process, I would suggest.

  Mr Ehmann: If I may add something else, and it is also tied in with your previous question about best practice internationally, there is a question, perhaps not exclusively on employment law, about exemptions which was certainly raised in the Enterprise White Paper which came out recently, which is the extent to which we can exempt smaller businesses from some obligations. I think that is a detailed piece of work to do because, as has clearly been pointed out, some obligations legally and socially should be universal, I do not think there is any doubt about that, but there also is not any doubt that if you look at small business statistics over the last five or 10 years you will see that there has been good growth in sole trader set-ups but that has not percolated through to growth of smaller, medium and larger sized enterprises in this country. I would argue, on behalf of what I hear from our members at least, that part of that is linked to a very distinct line about the regulatory obligations that one takes on when one has that first employee taken on. I am not necessarily espousing restricting regulatory requirements for a certain number of employees but what I would recognise is that the current system does have an effect on growth of businesses in this country.

  Q52  Judy Mallaber: What about the FSB? Are there areas which you would remove?

  Mr Davenport: I absolutely agree with what Alexander has said. I mentioned earlier that the level of burden on small businesses is six times larger than it is on larger businesses because it is one individual doing it and he has a large amount of paperwork to do, but it is important to try and encourage small businesses. Their first two years are when they are at their most frail but there is the next stage which often tends to be ignored and that is when they want to expand and they reach a point where they are often overstretched and lots of businesses which have been running for five or six years tend to fail because of the fact that they overstretch their resource or something like that. That is not the time to suddenly have large administrative burdens placed on them, at the point where they are just about to go from a very small, comparatively frail organisation to a more robust organisation, and it is important that we recognise that. The amount of finance that is available to start-up businesses is huge in relationship to expansion businesses. We also have an issue as far as businesses coming to retirement are concerned. Ninety-seven per cent of small businesses in Britain have owners over 55. That is a time bomb which is ticking away. What do we do with those small businesses? Do they just close? Do we leave them as they are and let them die on the vine? Do we encourage them to be sold to young entrepreneurs to start again? That affects what is happening to the burdens that are applied to those businesses because when someone is assessing a business, a bank or any finance house is assessing what is the cost that is going to be incurred on this business if it is purchased by this individual, that tends to constrain the movement and acquisition of businesses.

  Q53  Judy Mallaber: One of the areas that you particularly highlight and has been highlighted to me is around maternity rights. I was interested in whether any of your organisations in your overarching view of what is good for your membership have looked at both the skills gap as a constraint on future encouragement of your membership and its ability to expand in the economy and the relationship between that and these various pieces of legislation, given that a huge area where we are not using people's skills is amongst women. Certainly, as somebody who has both run a small organisation myself and now employs a small number of staff, I would do anything to keep my good trained staff and do things to assist them to remain or come back into my employment, and that is clearly a constraint on business and I wondered if you had done any analysis as organisations of how you reconcile what we need to do to retain and enhance people's skills and get more people involved in the work with these areas of what I can understand are quite burdensome to implement for a small organisation.

  Ms Low: The survey work that we have done shows that businesses are providing all types of flexible working to retain staff. Business owners that we surveyed said that they were operating flexible working not just for women with young children; if they did it they were doing it right across the board for everyone, because in small businesses you have relationships with everyone so that is very much how it was framed, but the first reason they were doing it was out of personal conviction, and staff retention was a very important part of that too. There was the belief in the fact that it was the right thing to do but also the fact that it was the best way of retaining good staff and having that commitment for the long term, as you say.

  Q54  John Hemming: There has been a debate about the over-judicalisation of government and there is a question in employment law as to whether we are seeing the same situation. I have employed people for over 20 years and some individuals still work for me whom I employed many years ago. About 15 years ago you would have had a quiet word with somebody but now you have to initiate a competency procedure. I wonder if the way in which the rights are enforced and the way the costs operate, and obviously the FSB have a very helpful service which I cannot use for my larger business because it is a larger business but I can with a smaller business --- do you have any comments on the over-judicalisation of employment law?

  Ms Low: Very often, to make things tidy, it has been a preference, particularly, I have to say, of large companies with large HR departments, for example, to have that certainty within the process and then that would require representatives and procedures. The flexibility and the informal nature of that has then been lost as it filters down the scale to smaller businesses employing smaller numbers of people. As you know, they will not necessarily have HR departments and have that advice and knowledge of procedures in-house, so I think there has been an element of that. In flexible working, with extending the right to request, for example, there is a procedure to be gone through and if you have never had anybody who has requested it before and you are not used to that then as a manager you have to get up to speed with that and employ that process.

  Mr Ehmann: I think flexibility in implementation is critical because no two businesses are the same in terms of size or the business they practise, so, as has been said earlier, if you can draw much more of a link with the common-sense objective of a policy and therefore a business is able to implement it in a way that suits them best, that will probably deliver much more of the result that you intend to achieve. The other thing I would just say is that the Institute of Directors also offer the advice service to any sized business as well.

  John Hemming: I have refused to join the IoD on a number of occasions.

  Chairman: We will move on. Some of this recent series of questions are not absolutely central to our inquiry but are of interest to members because it contextualises things. Mr Ehmann, you talked about the evidence that burdens can affect growth and I heard Mr Davenport's interesting observations there. If there is any comparative evidence that you can produce to show that other people do it better that would be extremely valuable to us. Can we move back to the BRE?

  Q55  Gordon Banks: I suppose what we have been hearing from you indirectly today is about your experiences of working with BRE, but directly what are your experiences of working with the BRE? We have talked about the business focus and how the move to the Cabinet Office was maybe a good step. How good has that been, or is the aspect of business still viewed as a necessary evil to complete the process that the BRE has got and not really as a partner? Does the BRE have the right people and is it organised in a way which is helpful to you, or is it organised in a way which is helpful to the BRE? I suppose you could go on and say, does it have enough new ideas, does it talk enough to organisations like yourselves? How can we expand on some of the issues that we have talked about, how the BRE can improve its communications processes, because we have been talking about some of these things over many meetings and it would be good to think of a focused way in which we could move the communications issue forward.

  Mr Fell: My experience and the CBI's experience of working with the BRE is that it is quite a positive working relationship. Quite clearly we engage with any number of government departments where they have business-based issues and will continue to do that. I think we would have a level of dialogue with BRE if we had a particular concern about something that was coming out that we think they could usefully on work from the inside to help raise awareness of any concerns or issues. I think they are quite happy to work with us on a relatively informal basis to say, "Are you aware of some changes that are coming out? What are your views on them?". I think that level of dialogue is pretty good and pretty healthy right across the piste, so, in terms of a working relationship with the department, that works quite effectively for us from a business association point of view. Quite clearly that may be different if you are an individual firm, for example, and particularly a smaller company. In terms of those communication channels that we have talked about this morning I think there is scope to do more on that front, but certainly from an organisation point of view, from the CBI's perspective, those channels are working quite well.

  Mr Ehmann: If I may add a couple of points directly to the questions you ask, on the whole the Better Regulation Executive has been extremely helpful and willing to assist. I think it is well resourced in the sense of the capacity it has amongst its staff to engage with us. I think they are very good on the whole. On the flip side I am not sure they are well enough resourced to do what they do today, let alone what we would like to see the agenda achieve and the activities that would be necessary. If I may add two other slightly more negative points, there is a lot of listening but the transference of that into tangible activity sometimes does not take place, and the last point is that I still feel the relationship is perhaps, speaking from the Institute of Directors' point of view, a little too much pull in the sense that the onus is very much on us to go to the BRE with what we want rather than the BRE coming to us a lot more proactively.

  Mr Davenport: I would completely endorse that section of Alexander's comments. It always seems to be that we go to them, not them coming to us. I think some of that was when they were in the Cabinet Office more than now. They are beginning to realise that engagement is the way forward because it gives them information as well.

  Q56  Gordon Banks: They will have to view you as a partner?

  Mr Davenport: Yes.

  Q57  Chairman: They did claim to us, Mr Davenport, that some of their officers have been out in the field working with some of your members. Has that been a positive experience?

  Mr Davenport: It has, yes. I take note of what Sally said about the Mitchell Leeman experience and the fact that he has moved on to another department. What I would say about that is that Mitchell's experience in the field is anecdotal within BERR. The information is still there. It is still being used. "I remember when Mitchell was out in the field", so they are conscious of it. It is no bad thing and I think the more it happens the better for both organisations it will be, because it is a positive thing for business as well to understand how the Civil Service works and how the regulatory system works. It is always positive for both sides, I feel.

  Mr Ehmann: Sometimes I am under the impression that business organisations are being managed by the BRE rather than seen as a solution to the problem which they are looking to solve. I think maybe there is a little change in view that is necessary.

  Ms Low: We would say that the BRE is key to all this, to delivering regulatory reform. We would like to see greater political clout at the centre and greater levers that they can pull across the government departments so that we are seeing step changes in measurement and rigorous enforcement of impact assessments, as I have set out. I cannot really think of any great new ideas that have come out but there certainly has been partnership working operating effectively; we have very good dialogue, and also we have seen a lot of the key senior people, not just the inimitable Mr Leeman but also Jitinder Kohli and William Sargent were very visible and we have hosted across the chambers a number of roadshow events which have enabled a number of our businesses to meet and for them to get in front of businesses. Also, there have been across BERR a lot of shadow trips to businesses, which is all good, but I think you have to weigh it against the vast task that has to be done, so we need to keep that in perspective. I would say yes, it is a positive relationship and I think there is good dialogue, which has, I think, warmed up since they moved into BERR.

  Mr Fell: A thought that always occurs to me is that sometimes they have a bit of a tricky task, in a sense, in that a lot of their successes might be done behind closed doors if they have had a quiet word with colleagues in other departments. Perhaps it is sometimes not the best idea in the world to go trumpeting your success because the person you have had that success with might not be so keen to turn to you for advice next time out if you have then a big public fanfare about how you put them right on an issue. I think it is worth recognising that that is the nature of the work that they are engaged in and sometimes that is the way that they will operate.

  Q58  Chairman: HMRC claim to have made progress in making life easier for business by designing better forms and simpler returns. Should the BRE work more to share best practice with HMRC?

  Mr Ehmann: Absolutely, but I would go one stage further. I think the BRE needs to have as much of a stick as they have with any other department with HMRC, in fact perhaps more so.

  Mr Davenport: That would be a real culture change as far as HMRC is concerned.

  Mr Fell: We would endorse that view. You only need to look at the classic example of the tax handbook which has shot up by some 4,000 pages to be the longest tax code in the world in about the last seven or eight years, so the message back to HMRC is that all is not entirely well on that agenda.

  Q59  John Hemming: I come back to the measuring process again. Do you think the figures for savings stand up, such as the £800 million in savings claimed under the Departmental Simplification Plans to date?

  Mr Ehmann: There is a clear mismatch between that and the 1% who feel that regulation has improved. If I might just say, I think the Armageddon scenario in 2010 is that government departments say they have achieved 25% but business has noticed no change. In that circumstance I see the political will that exists on this agenda dissipating, I see businesses' engagement in the process completely diminished, and potentially we could have a list of new regulatory burdens that are all mounting post-2010 too, so no is the ultimate answer.

  Mr Fell: For me it would come back to the point about communicating the changes that have taken place. Employment legislation has figured quite high on our agenda today and a lot of the savings which are claimed in, for example, the BERR Simplification Plan are centred around 20 or 30% take-up rates on employment guidance. I think that is where a real job of work needs to be done to make sure that those take-up rates are secured for the savings to be real.

  Ms Low: I support that, and I also think that the business as usual approach has distorted that as well.

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